Covid-19 widens gap between city and regional law firms

03 March 2021 2 min. read
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Despite a challenging year, the UK legal industry enjoyed growth of more than 6% during the Covid-19 pandemic. However, more than 40% of firms outside of London reported revenue drops over the course of the year, suggesting the crisis has prompted a sizeable migration of their clients.

Including private practice firms, barristers, patent agents, and other legal services providers, the UK legal services market is valued at around £37 billion.

Judging by the results of global professional services firm Crowe’s annual law firm benchmarking, at first glance, the legal services industry managed to shrug off the impact of the coronavirus and recession – however a deeper examination reveals that the crisis may have led to a colossal shift of business between certain firms.

Revenue - a very polarised year

The researchers from Crowe found that legal services operators last year enjoyed a remarkable revenue growth of 6.7%. However, while 38% of firms based in London’s City area saw increases of more than 10%, 41% of regional firms found their revenues fell in 2020.

While for many of these firms, the income drop was not catastrophic, as the average decrease in revenue was 4.6%, the number to see a fall in revenues was one of the highest proportions Crowe has seen since beginning research for its law firm benchmark in 2012.

Covid-19 measures

In a bid to curb costs, restricting payments to partners featured strongly for all firms, with around two-thirds of participants cutting monthly drawings levels. The majority of City firms (around 74%) also deferred partner profit distributions, although this figure falls to 39% of regional firms who put a hold on paying out prior year earnings.

Impact on the workforce was inevitable – over half of respondents took actions to reduce their headcount. The impact was much greater in the regions where this proportion rises to almost two-thirds of regional participants, compared with just under a third of City firms who made cuts.

Which of the following further financial measures formed part of your firm’s strategy?

Around 40% of firms renegotiated pay and benefits packages with their people; many will have had the goal of preserving as many jobs as possible and providing greater flexibility in working practices. In addition to the Coronavirus Job Retention Scheme, half of the regional firms also reduced working hours for employees, something the City firms were more reluctant to do with just over two-thirds choosing to maintain existing contracted hours.

When it came to cost control, around half of participating firms suppressed discretionary expenditure but only one-in-eight participants deferred capital expenditure.

Meanwhile, the legal industry is facing disruption from digital competitors and even an incursion from the professional services world’s Big Four.